High Court grants injunction to losing bidder over £1bn waste contract award

A High Court judge has granted an energy company an injunction preventing a waste authority from entering into a £1bn+ resource recovery contract (RRC) with a rival business.

The injunction stopping Merseyside Waste Disposal Authority (MWDA) from entering into the contract with a SITA consortium will remain in place until Covanta’s claim that the procurement process was legally flawed goes before an expedited hearing. This hearing is expected to take place within the next seven to nine months.

Covanta raised a series of concerns about the tender evaluation process, alleging that there had been manifest errors.

The company said it was surprised to find out that, despite its involvement with the competitive dialogue procedure, two of the key elements of its tender received no marks at all and were described as “fundamentally unacceptable”.

On 15 May 2013 Covanta launched legal action seeking orders setting aside MWDA’s decision not to award it the contract and to restrain the authority from entering into the contract with SITA. Covanta also sought an order requiring MWDA lawfully to re-evaluate the respective bids.

Covanta’s primary case was that Regulation 47G of the Public Contracts Regulations 2006 (as amended) applied to the procurement process and there was therefore an automatic suspension requiring MWDA to refrain from entering into the proposed contract with SITA.

The waste authority countered that the amended regulation did not apply because the procurement process began it came into force.

If MWDA was proved to be right, and there was no automatic suspension, Covanta’s fall back position was to seek a interim injunction in accordance with the American Cyanamid principles.

In Covanta Energy Ltd v Merseyside Waste Disposal Authority [2013] EWHC 2922 (TCC), Mr Justice Coulson found that the automatic suspension provisions did not apply to this case. “The issue that remains is whether or not, in all the circumstances, the court should award an interim injunction preventing MWDA from contracting with SITA until the trial of the issues in this case.”

The judge identified a number of factors in favour of granting the injunction:

1. It was in the public interest that authorities such as MWDA comply with procurement legislation. “This is a major contract involving a large sum of money.”
2. Damages would not be an adequate remedy for Covanta if MWDA entered into a contract with SITA before the court had reviewed the tender process and it turned out that Covanta’s criticisms were justified.
3. If an injunction were not granted, Covanta would be deprived of the remedy prescribed by EU law, a relevant factor in relation to the balance of convenience.
4. If Covanta did not obtain an injunction but was successful at trial, its financial claim, however it was ascertained, was likely to be considerable, and much larger than MWDA had the resources to meet.
5. In the context of this particular procurement exercise, the impact of any likely further delay in the letting of the RRC “could properly be described as modest”.

Factors in favour of refusing the injunction were:

• The financial costs of the delay, “although those are unlikely to be significant, certainly in the context of the value of the RRC”.
• A delay could have an adverse effect on SITA.

The judge said that “simply as a measurement of time”, a further delay of nine months was a “modest delay when set against the delays thus far of six years, and the fact that the RRC was itself due to last 30-35 years.

Mr Justice Coulson said that while the environmental impact – in postponing the diversion of more waste from landfill – was plainly a factor to be taken into account in the balance of convenience, it did not alter his view that, in the round, a delay of nine months in the context of all the circumstances of the case did not support the refusal of the interim injunction and was, in the round, a further factor in favour granting the injunction.

Summing up on the balance of convenience, the judge said that the factors in favour of granting the injunction outweighed the factors in favour of refusing it.

“To put it another way, granting an injunction for what is a relatively short time in the context of this case, involves the least risk of injustice,” he added. “Subject therefore to the provision of the guarantee in respect of the cross-undertaking in damages, I would grant Covanta the injunction sought.”

Ian Tucker, a senior associate at law firm Burges Salmon, said: “The case is important, and comparatively rare, because an injunction was granted by the court (although this case was brought under former procurement rules the principles of whether an injunction would be allowed remain substantially the same).

“This has only happened previously in very few cases (and no major GB case) as the courts have shown a willingness to ensure that public authorities can actually proceed with their procurement and the wheels of government are not gummed up by ‘bad losers’.”

Tucker added that the issues justifying the injunction in this case did not appear to have been particularly abnormal, other than, perhaps, the limited funds of the authority.  

“So, is this an indication that the courts are going to be more willing to support dissatisfied bidders in future? There is certainly a higher risk than there has been for some time. Alternatively it might simply reflect the trial judge’s initial impression that the authority had actually made major mistakes in this particular procurement and should not get away with it.”

Fiona Penhallurick, Managing Director of Covanta UK, said it believed it had a strong case against MWDA.

She added: “It is great that the clear economic benefits for Merseyside in our bid are now in the public domain. Our solution would save hundreds of millions of pounds for Merseyside taxpayers, create local jobs in Merseyside and be better for the environment by avoiding transporting this waste right across the country.

“The judgment also highlights how incomprehensible it is that after six years, and hours of dialogue with MWDA during the tendering process, two elements of our bid out of a total of five were scored at 0%. The whole point of the competitive dialogue process is to ensure that the authority ends up with a choice between two excellent bids.”

MWDA highlighted how the court had told Covanta to provide a parent company guarantee should its legal challenge prove unsuccessful. “This means that Covanta would have to pay for the delay caused by the interim injunction and their legal challenge.”

Carl Beer, the waste authority’s chief executive, said: “We are grateful for the clarification from the Court and will now making the required preparation for our full case to be heard as soon as possible.”

He added that the authority regretted that Covanta had decided to pursue litigation. The authority “will be vigorously defending the claim brought against it”.

Beer said: “Our detailed defence strongly rejects the various allegations which have been made by Covanta, and sets out the significant risks to which Covanta’s solution could have given rise for MWDA if it had been taken forward. The defence also details the serious concerns which were raised by MWDA prior to Covanta choosing to submit its bid.”

He added that the waste authority would continue to defend the action until the case was resolved and intended “in due course to recover its legal costs of defending the claim from Covanta”.

See also: The Merseyside Waste procurement injunction - lessons for public bodies by John Houlden and Patrick Parkin